With the AI bubble inflating valuations across the tech sector, it’s becoming difficult to find stocks that aren’t already deep in overbought territory. However, for those willing to dig deeper, there are still diamonds in the rough. Adobe (ADBE) is currently at an interesting juncture, presenting one of my favorite setups: a mean reversion trade. (I cover this trading method in detail in my book, Mean Reversion Trading ) A look at the 9-month daily chart reveals several signs supporting a potential bounce from its current price level. Support/Resistance The white line on the chart highlights a multi-month support zone near the $330 level. Over the past nine months, the price has reversed and bounced from this level on multiple occasions. ADBE has returned to this support zone and, after testing it, is now showing a sharp rebound. MACD (Moving Average Convergence Divergence) The MACD is often used as a reliable reversal gauge. While the standard (12, 26, 9) settings are popular, they can produce lagging signals. For this reason, I often switch to (5, 13, 5) for a quicker read. On the ADBE chart, the MACD line (blue) has just crossed above the signal line (yellow). These bullish crossovers are widely considered by chartists and technicians to be reversal signals. RSI (Relative Strength Index) The final piece of the puzzle comes from the Relative Strength Index (RSI). The RSI has bounced sharply after nearing oversold levels, providing further confirmation for this bullish setup. Interested in trades like these? My trading algorithm brings structure, rules, and discipline to options traders and is beating the benchmarks. See it in action here . The Trade Setup : ADBE 340-345 Bull Call Spread To capitalize on this setup with ADBE trading at $343, I’m using a bull call spread. This is my preferred strategy here because it offers both a clearly defined risk and a defined payoff. The structure is simple: you buy one call option and simultaneously sell another call at a higher strike, both for the same expiration. For this trade, I am targeting the 340-345 bull call spread. The maximum value of this spread is $5.00 (the difference between the strikes). If we can enter for a debit of approximately $2.50, we are positioning ourselves for a potential 100% return on risk. The win condition is for ADBE to finish at or above the short strike ($345) by expiration. If it does, the spread pays out its full value. To put that in concrete terms: trading 10 contracts would mean risking $2,500 for a potential gain of $2,500. Here is my exact trade setup Buy $340 call, Nov. 14 expiry Sell $345 call, Nov. 14 expiry Cost: $250 Potential Profit: $250 -Nishant Pant Founder: https://tradewithmaya.com Author: Mean Reversion Trading Youtube, Twitter: @TheMeanTrader DISCLOSURES: Nishant has an ADBE Bull Call Spread expiring on Nov. 14. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
